IRS Business Expense Categories List [+Free Worksheet]
Tim is a Certified QuickBooks Time (formerly TSheets) Pro, QuickBooks ProAdvisor, and CPA with 25 years of experience. He brings his expertise to Fit Small Business’s accounting content.
Lea D. Uradu, JD is aTax Law Professional who has occupied Sr. Tax Law Researcher role, the tax Tax Law Change Analyst and Tax Adviser role. She also has experience creating tax content with Millionacres, The Motley Fool, Investopedia, The Balance, Bankrate, Nasdaq and MSN.
We have selected the most common business expense categories identified by the IRS—such as employee wages and benefits, excise taxes, and advertising and marketing costs—since it’s impossible to cover every type of deductible business expense. Below, you will find a detailed description of what’s included in each business expense category and how to qualify for the tax deduction.
Download your free copy of our Business Expense Categories Worksheet. This list is a great quick reference guide and includes:
- Examples of what type of business expenses are deductible in each category
- Examples of nondeductible business expenses by category
- The tax form you need to complete to claim the deduction
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1. Employee wages: You can deduct gross wages, salary, commission bonuses, or other compensation paid to your employees. This includes wages paid to a spouse or children, provided they performed services for your business, the amount is fair, and the payments were made through payroll. Sole proprietors reporting to Schedule C cannot deduct amounts paid to themselves, but S corporations (S-corps) can deduct wages paid to their shareholders or managers.
2. Employee education expenses: Payments made to employees for reimbursement of tuition, books, and other materials are deductible. Education expenses must be required by you, serve a bona fide purpose of your business, and maintain or improve your employees’ skills to be deductible.
3. Employee benefits: Payments made on behalf of employees to cover the following programs are tax-deductible:
- Accident and health plans
- Adoption assistance
- Cafeteria plans
- Dependent care assistance
- Life insurance
4. Rent or lease payments: Payments made to rent office space, equipment, or a warehouse for inventory and supplies and on vehicle lease payments are all tax-deductible. A Schedule C business (or sole proprietor) cannot rent property from the business owner. However, an S-corp or C corporation (C-corp) is allowed to rent property from the shareholders as long as the amount is fair.
5. Taxes for leased business property: Taxes paid to a lessor on leased office space, equipment, and vehicles used for business purposes are a deductible business expense.
6. Business interest on the debt for trade or business: Interest payments made on all loans, lines of credit, and other liabilities incurred for your trade or business are tax-deductible. Interest on income tax debt, loans with respect to life insurance, and interest on personal credit cards are not deductible business expenses.
There is a limitation on the maximum deductible interest expense, but the limitation only applies if your average annual gross receipts for the prior three years are greater than $27 million. Learn more about this through our article on deductible business interest and limitations.
7. Payroll taxes: Employment taxes paid on behalf of your employees is a deductible business expense. This includes Social Security, Medicare, and federal and state unemployment taxes.
You may be interested in our guide on federal and state payroll tax rates for employers. It includes the process of paying and the penalties involved for missing payments.
8. Excise taxes: If you purchase alcohol, tobacco, or fuel for your business, you may be required to pay excise taxes. The good news is that you can deduct excise taxes on your tax return.
9. Personal property taxes: Personal property taxes paid on business property are deductible. “Personal” in this context refers to property that can be removed from the business without damaging it, as opposed to real property. Some examples of personal property are office furniture, machinery, and equipment.
10. Insurance premiums: Premiums paid to protect your business against loss or theft are deductible business expenses. This includes:
- Natural disasters like hurricanes, earthquakes, and floods
- Business bad debt
- Liability insurance
- Malpractice
- Workers’ compensation insurance
- Life insurance
- Insurance on vehicles used for business
11. Self-employed health insurance: If you are self-employed, payments made for medical, dental, and qualified long-term care insurance for yourself, your spouse, and your dependents are deductible. The premiums are not deductible on Schedule C like other business expenses, but rather Form 1040, Schedule 1, line 17 as an adjustment to income.
12. Business startup costs and organizational costs: Costs incurred to get your business up and running are deductible business expenses. Within the first year, you can deduct up to $5,000 for startup costs and $5,000 for organizational costs. Any amount of more than $5,000 can be amortized over a 15-year period.
Our guide on tax-deductible business start-up costs can help you in this area. It also lists how to make the election and includes examples of the calculation.
13. Bad business debts: If you use the accrual basis of accounting, you record income as soon as a service is provided and the customer owes you money. If you are later unable to collect from the customer, you can deduct the amount as a business bad debt. Businesses using the cash basis of accounting don’t record income until the cash is received, so they never have bad debts.
For more information on accounting methods, see our guide to accrual vs cash methods.
14. Travel, meals, and lodging to employees: Reimbursements to employees for travel, meals, and lodging for business travel are deductible.
For more on this deduction, see our guide on claiming the meals deduction. It covers meal types that can be deducted to lower your tax liability and how to calculate travel meal expenses.
15. Advertising and marketing costs: Expenses incurred to promote your business are deductible business expenses. This includes business cards, flyers, websites, and fees paid to email marketing companies for promotional emails.
16. Car and truck expenses: If you use your vehicle for business, you can deduct the portion that you use the vehicle for business. There is a standard mileage rate that you can use, or you can deduct a portion of vehicle-related expenses like gas, repairs, car washes, parking fees, and tolls. Learn more about using actual expenses vs the standard mileage rate.
17. Charitable contributions: A business can deduct up to 60% of the owner’s adjusted gross income as charitable contributions. However, be sure to adhere to the following guidelines:
- For contributions of $250 or more, you must obtain a letter from the organization that includes the amount of the gift and whether or not you received any goods or services in exchange for the donation.
- Volunteered services are not deductible; however, you can deduct costs incurred while volunteering like supplies purchased
- Mileage incurred while volunteering is deductible at 14 cents per mile for 2023
- Donations of goods, services, or property are deductible
18. Club dues and membership fees: Membership dues paid to the chamber of commerce and other professional/trade associations of which you are a member are deductible business expenses. Keep in mind that fees paid for the following are not tax-deductible:
- Country clubs
- Golf and athletic clubs
- Hotel clubs
- Sporting clubs
- Airline clubs
19. Franchise, trademark, and trade name: Fees paid to purchase a franchise, trademark, or trade name are tax-deductible business expenses.
20. Interview expense allowances: Any payments made on behalf of a prospective employee during the interview process are deductible business expenses. This includes travel costs like airfare and lodging for candidates who are from out of town, as well as parking fees or other costs. Meals are also deductible up to 50% of the cost.
21. Legal and professional fees: Payments made to attorneys, certified public accountants (CPAs), financial planners, or other professionals for your business are deductible business expenses.
22. Tax preparation fees: Fees paid to a tax preparer to prepare your tax return are tax-deductible. If you prepare your own taxes using tax software like TurboTax, the amounts paid to purchase the software and e-file your federal and state tax returns are also deductible business expenses.
23. License and permits: Payments for a business license, liquor license, real estate agent license, and other permits required for your trade or business are all tax-deductible business expenses.
24. Penalties and fines: Penalties paid for late performance or nonperformance of a contract are deductible. However, penalties and fines for breaking a law, such as speeding or filing a tax return late, are not deductible even if business-related.
25. Repairs: Minor repairs to your office, such as painting and plumbing leaks, are deductible business expenses. However, major repairs that will increase the value of the property must be capitalized and depreciated. For example, replacing a roof or heating, ventilation, and air conditioning (HVAC) system.
26. Subscriptions: Subscriptions to magazines and journals that are related to your business are tax-deductible. Personal magazine subscriptions are not tax-deductible.
27. Supplies and materials: Supplies used in your business are tax-deductible. This includes:
- Paper
- Ink for printer
- Pens, pencils, and notepads
- Cleaning supplies
- Books and manuals
28. Utilities: Payments made for electricity, telephone, and gas for your office space are deductible business expenses. Monthly service fees paid for telephone service in a commercial office space are also tax-deductible. If you have a home office, you are not allowed to deduct the basic telephone service charges and taxes for the first line in your home. However, any subsequent telephone lines added for business use are deductible business expenses.
29. Depreciable assets: Purchases made for furniture, equipment, and machinery typically must be depreciated over the number of years they are expected to last. However, most small businesses will be able to deduct 80% of furniture, equipment, and machinery purchased in 2023 with the use of bonus depreciation or Section 179.
For help figuring out your depreciation, we have these tools:
- Modified accelerated cost recovery system (MACRS) depreciation calculator
- Bonus depreciation calculator
You may also want to read our guide on the Section 179 deduction. We cover what qualifies for the deduction and what the limits are.
30. Payments to 1099 contractors: Payments made to independent contractors that provide goods and services to your business are tax-deductible.
31. Home office: If you have a home office, you can deduct $5 per square foot of office space, up to a maximum of 300 square feet. If you prefer, you may deduct a portion of your actual household expenses based on the percentage that you use your home for business. This includes:
- Utilities
- Real estate taxes
- Insurance
- Deductible mortgage interest
We have an article on what the home office tax deduction is. It will walk you through what the requirements for a home office are, what expenses qualify for the deduction, and more.
32. Client gifts: You can deduct up to $25 for each client gift that you purchase. This can include gift card purchases, gift baskets, or other items.
33. Continuing education: You can deduct payments for registration fees and materials for seminars and courses that you and your employees attend as part of continuing education credits for your trade or business.
34. 401(k) plan contributions: Your employer contribution to employee 401(k) plans is tax-deductible.
35. Removal of barriers for the disabled: You may be able to deduct money paid to remove architectural or transportation barriers that your business may have so that the elderly or disabled can get in. The maximum deduction for this expense is $15,000. In connection with this expense, you may also be able to claim the Disabled Access Credit or the Work Opportunity Tax Credit (WOTC) for hiring disabled workers.
For more on this, read our guide on how to claim the tax credit for hiring a disabled worker.
What a Business Expense Category Is
A business expense category is an organized way to group business expenses for tax reporting purposes. It’s important to know what types of expenses are included in a category so that you can apply the appropriate rules when it comes to deducting expenses on your tax return.
Instead of providing a master list that includes everything a business can deduct, the IRS has defined a business expense as meeting two requirements:
- Incurred in a trade or business: A trade or business must be profit-motivated. You must plan and have the ability to make a profit, even if that profit never actually occurs. If the IRS doesn’t believe you ever intended to make a profit, the agency will call your business a hobby and disallow your expenses.
- Ordinary and necessary: According to the IRS, “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
One of the most comprehensive resources on what business expenses are, the qualifications that must be met, and what is and is not deductible is IRS Publication 535: Business Expenses.
Frequently Asked Questions (FAQs)
In general, if an expense is ordinary and necessary for you to conduct business, it can be written off as a business expense. While the IRS does provide some guidance and a comprehensive list of common deductible business expenses, there is no way to give you a list of all.
A good rule of thumb when it comes to what you cannot write off as a business expense is anything that is considered or can be interpreted to be a personal expense. In addition, the following expenses are always nondeductible:
- Penalties and fines for violating a law
- Illegal payments such as bribes
- Entertainment, even if connected to business such as entertaining a client
- Country club dues
For years 2018 and later, employee business expenses are no longer deductible. However, they are deductible by the employer if they reimburse the employee.
The 12-month rule allows you to deduct a prepaid future expense in the current year if the expense is for a benefit that lasts no longer than 12 months or until the end of the tax year after the tax year in which you paid for it.
Bottom Line
Now that you know the common IRS business expense categories, the brief descriptions, and the tax forms to complete, it’s time for you to decide how to track expenses during the year. We recommend that you use accounting software like QuickBooks Online. We have free QuickBooks courses that you can take to learn how to use the platform.
